Every week somebody asks me how they can get started in real estate investing with no cash.
From now on, I’m just going to let them read this blog post! 🙂
If you wait to get started until you have enough cash – you never will get started – from my experience.
I have seen hundreds of investors wait for the right time to get started, and they never do.
Real estate is EXTREMELY capital intensive, and if you are wanting to get started OR grow a real estate company you are going to have to be VERY CREATIVE when it comes to finding money to grow your real estate portfolio.
I know a ton of real estate investors who are full-time who got started by borrowing on their credit cards to get started because even their parents wouldn’t loan them money! I certainly don’t advocate for this but I do find it motivational and it shows the level of commitment these guys and gals had toward their real estate investing business.
Wholesaling real estate is when you get a property under contract to purchase for a certain price. You then sell the property (or contract) to a buyer at a higher price and you make the difference.
All the wholesale deals I have actually seen done involve actually one closing and the difference in price is just a line item fee on a HUD.
A popular variation of this is when there are actually two closings. I have bought two properties from wholesalers and each time they actually bought the property the same day I bought the property and just did a double-close.
This sounds really simple in theory but in-reality it’s VERY HARD!!!!!
First, you have to find an EXTREMELY motivated seller! Typically, these people are some higher variation of crazy.
Then you have to get them to agree to sell their property FAR BELOW WHAT ITS WORTH! The biggest benefit you can sell is you can CLOSE FAST!!!!!!!!!
Then you have to find a CASH BUYER – which is of-course few and far between – that can ACTUALLY close fast.
From what I have seen, most wholesale fee’s are between $1k-$5K. However, I have seen a $75K wholesale fee on a $175K total purchase, so the big wins are out there!
This zero cash strategy is rarely talked about for some reason in the real estate community.
If you have a deal that you would like to do but is well outside your capital capacity (aka: you don’t have the money), find an outside investor.
There are a ton of variation of this but I’ll give you a basic version and you can edit it to make it your own.
You find a property that you can buy for $100K and will require $80K in renovation work. After renovations, this house should be worth $280K. The investor buys the property and funds all renovations. You can charge a monthly fee and get a collection of the profit. I have also seen where somebody just charges a flat fee project management fee and breaks it up into two payments: one payment at the beginning and one payment at the end.
If you are negative and are wondering: why would anyone agree to do this? I’ll tell you why!
NOBODY HAS THE TIME!!!
If this strategy is even remotely appealing to you it means you have the time but don’t have the money!
This investor is looking at making $100K. If I was putting this deal together I would charge a $10K project management fee and get 10% of the profit.
If you can get this deal completely done from purchase, to renovation, to sold that means this investor will net around $80K in profit on a $180K project. That’s an ROI of 44.44% and an annualized ROI of 344.30%!!!!
Not bad for not having to find the deal, manage the construction process and sell the property!
This strategy is the best strategy if you don’t need any cash but are looking to build long-term wealth.
My favorite syndication story I have heard is this:
An investor found a large 100-unit apartment complex he wanted to buy but didn’t have the money. He found a group of investors to put down the down-payment and he got the loan in the LLC’s name with him and the other investors and guarantors.
The investors own 70% of the LLC and the syndicator owns 30% of the LLC.
Once the investors get twice their money back, the ownership flips to 70% for the syndicator and 30% to the investors.
I know I’m being copious, but there are thousands of variations of this strategy, this is just the one that I have found most interesting. The syndicator that told me about this strategy took control of over 500 doors by the time he was 30 years old.
Unless you are a trust fund kid the only way to do this is with outside investors.
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Here are a couple of other strategies that you can use to make money this week using none of your own cash:
Development Fee: get a development fee to go buy-up parcels of land, possibly change the zoning, then sell to other builders and/or investors.
Acquisition Fee: work directly for a wholesaler and get paid on a percentage of the profits the wholesaler makes
Work: Obviously this is the least “sexy” type of job but there is plenty of work out there to crack your foot in the door. When I say “work” I mean for literally anybody: realtors, developers, property managers, et cetera.
I know somebody who makes an extra $15K a year making the large wooden platforms that commercial real estate signs go into. He just makes the wooden frame – not the actual sign. I know several other people who make full-time level income working part-time for property managers doing whatever they need done and being flexible with their time.